Sorting Out Whitby Landmark

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Sorting Out Whitby Landmark

• Duncan W. Glaholt

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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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Doe v. Canadian Surety Co. 1937 S.C.R. 1

• Bonds as a specialty
• One law for all sureties
• An undertaking given by the contractor without
  the consent of the surety was a variation of the
  contract discharging the surety.

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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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Thomas Fuller Construction Co. (1985) Ltd. v.
Continental Insurance Co., 1973 3 O.R. 202
(H.C.)

• It is not a breach not to report minor delays.
• Notice was necessary, but only when default was
  so serious that a declaration of default and a
  call upon the bonding company to perform is
  required.

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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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Citadel General Assurance Co. v. Johns-Manville
Canada Inc.(1983), 147 D.L.R. (3d) 593 (S.C.C.)

• Compensated v. gratuitous suretyship
• Only a prejudicial non-compliance is a defense
• Even then, only to the extent of the prejudice

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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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Falk Bros. Industries Ltd. v. Elance Steel
Fabricating Co. Ltd.(1989), 62 D.L.R. (4th) 236
(S.C.C.)

• Bonds as a class insurance
• The world post Citadel
• Failure to give notice is less serious than
  failure to bring an action
• Relief from forfeiture can be granted under
  Insurance Act in respect of delayed notices of
  claims.

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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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Paul DAoust Construction Ltd. v. Markel
Insurance Company of Canada(2001), 208 D.L.R.
(4th) 225 (S.C.C.)

• Bonds as a specialty again
• To be effective, an original signed bond must be
  delivered.

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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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Whitby Landmark Developments Inc. v. Mollenhauer
Construction Ltd. (2002), 4 C.L.R. (3d) 1 (Ont.
S.C.J.)

• Bonds as a contract
• Failure to give notice of default fatal
• Bond extends to cost savings provisions of
  contract

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Justice Lamek

• If Zurich intended to restrict the obligations
  that it undertook or to eliminate certain of
  Mollenhauers contractual obligations from the
  scope of the bond, it could easily have done
  so.  It did not.  Instead, Zurich issued a bond
  that obliged it, in the event of Mollenhauers
  default, to "complete the Contract in accordance
  with its terms and conditions".  It would be
  difficult to formulate a provision that would
  more easily embrace all of the obligations of
  Mollenhauers under its contract with Landmark.

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Justice Lamek

• If Zurich intended to restrict the obligations
  that it undertook or to eliminate certain of
  Mollenhauers contractual obligations from the
  scope of the bond, it could easily have done
  so.  It did not.  Instead, Zurich issued a bond
  that obliged it, in the event of Mollenhauers
  default, to "complete the Contract in accordance
  with its terms and conditions".  It would be
  difficult to formulate a provision that would
  more easily embrace all of the obligations of
  Mollenhauers under its contract with Landmark.

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Justice Lamek

• If Zurich intended to restrict the obligations
  that it undertook or to eliminate certain of
  Mollenhauers contractual obligations from the
  scope of the bond, it could easily have done
  so.  It did not.  Instead, Zurich issued a bond
  that obliged it, in the event of Mollenhauers
  default, to "complete the Contract in accordance
  with its terms and conditions".  It would be
  difficult to formulate a provision that would
  more easily embrace all of the obligations of
  Mollenhauers under its contract with Landmark.

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Justice Lamek

• If Zurich intended to restrict the obligations
  that it undertook or to eliminate certain of
  Mollenhauers contractual obligations from the
  scope of the bond, it could easily have done
  so.  It did not.  Instead, Zurich issued a bond
  that obliged it, in the event of Mollenhauers
  default, to "complete the Contract in accordance
  with its terms and conditions".  It would be
  difficult to formulate a provision that would
  more easily embrace all of the obligations of
  Mollenhauers under its contract with Landmark.

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Reaction to Whitby Landmark Trial Decision

• J. Steven Tatrallyay
• Decision will have a major impact on the surety
  industry

• R. Bruce Reynolds
• Decision is much ado about nothing
• Courts statement that the CCDC performance bond
  clearly and unambiguous-ly rendered the surety
  liable for collateral mone-tary obligations was
  just plain wrong.

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Whitby Landmark Developments Inc. v. Mollenhauer
Construction Ltd. (2003), 67 O.R. (3d) 628 (C.A.)

• There is no basis in the language of the bond
  or in the circumstances surrounding its
  negotiation or completion to suggest that the
  cost-sharing provisions of the construction
  contract are not included as bonded losses.

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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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Meanwhile, in Saskatchewan

• Lac La Ronge Indian Band v. Dallas Contracting
  Ltd. (2004), 35 C.L.R. (3d) 236 (Sask. C.A.)

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Facts

• Compensated surety
• CCDC performance bond
• Late completion
• Termination
• Liquidated damages

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Trial Decision (2001), 9 C.L.R. (3d) 25 (Sask.
Q.B.)

• Surety was liable with respect to liquidated
  damages for delay.

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Trial Judge

• the phrase complete the Contract does not
  confine the suretys liability to completing the
  work described in the Contract
• by the terms of the Contract, the Band may deduct
  liquidated damages from the amount otherwise
  payable to Dallas under the Contract and,
  therefore, may deduct them from the remaining
  funds
• the definition in the Bond of the term balance
  of the Contract price confirms the ability to
  deduct liquidated damages from the amount
  otherwise payable to Dallas.

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Court of Appeal (Jackson J.A.)(2004), 35 C.L.R.
(3d) 236 (Sask. C.A.)

• Surety was not liable with respect to liquidated
  damages for delay.

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• Whitby
• In case of default, surety has 3 options
• - remedy default
• - complete contract
• - obtain new bid

• Lac La Ronge
• In case of default, surety has 3 options
• - remedy default
• - complete contract
• - obtain new bids

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• Whitby
• There was no qualification on type of default
  referred to
• Third option did not limit suretys obligation to
  funding the completion of physical construction,
  but included other costs and damages.

• Lac La Ronge
• Surety did neither, but the measure of damages
  cant be greater than if it had fulfilled either
  option.
• Suretys obligation cant be greater under option
  2 than under option 3, because no surety would
  ever use option 2 if it meant greater liability

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• Whitby
• Third option required surety to pay costs of
  completion less balance of contract price, which
  was defined as total amount payable by obligee to
  principal less amount paid by principal to
  obligee.
• Therefore, amount surety had to pay to complete
  was higher than it would have been without cost
  sharing agreement.

• Lac La Ronge
• Balance of contract price does not mean damages
  award can be deducted from amount payable.
• Total amount payable is amount of contract.
• Words complete the contract can more easily be
  interpreted as complete the work than as
  perform all obligations under the contract.

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Lac La Ronge
Whitby Landmark
Elance Steel
Paul DAoust
Citadel v. Johns Manville
Doe v. Canadian Surety
Thomas Fuller
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The End